Assessing and evaluating circular business models through challenging life cycle costing approaches

The transition to Circular Economy involves rethinking of products, services, changes throughout the value chain, and implementation of circular business models. Potential economic gains and cost savings from circular business models have been mentioned as drivers to implement circular thinking within organisations. However, companies still struggle in understanding the economic benefits and implications associated with such a transition. To overcome this, metrics that provide economic information associated with circular products and business models are needed. Life cycle costing (LCC) has been identified as a potential economic quantitative assessment method. Through a systematic literature review, this paper presents the strengths and limitations associated to LCC in assessing the economic implications of circular business models.

The review recognised that LCC can provide a life cycle and multiple stakeholder perspectives, which are relevant to overcome some challenges associated with the implementation and design of circular business models. Furthermore, environmental and social LCC can include externality costs, which is an important factor for Circular Economy. Nonetheless, there is a lack of empirical studies implementing multiple stakeholder perspective and accounting for externalities. Several challenges were also identified: lack of understanding of the cost implications of products/materials with multiple life cycles; difficulties in allocating costs among multiple stakeholders; lack of data availability and low quality. These are relevant issues for costing associated to circular business models and should be addressed in future research.